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How to Invest in Real Estate Notes via Self-Directed IRAs?

realestate note investing

By investing in an IRA, you can withdraw your money from your account. You have seen this message many times. Using this IRA, you can possess assets in real estate or properties.

While Roth IRAs don’t support real estate investments, self-directed ones do. And it offers much flexibility to property owners to decide what to do with their retirement savings. It also allows people to utilize the concept of mortgage note investing to gain maximum profits.

This means you will know how to write these notes, select them, and make them work. A little reminder here, these notes are issued while getting a loan against a particular property. This shows that the lender is eligible for receiving payments from the borrower.

The payment schedule, date and location of note issuance, and what will happen in default situations. The note stays with the lender until the payment cycle ends, and there are no existing dues. After that, the note will be returned to the borrower. It can be named in various terms across different locations, and the security associated with it can vary too.

If invested smartly, it can provide enough opportunities to gain profits, and generate passive income in this department. The note will discuss the name of the borrower, and the lender, loan amount, interest rate, among other things.

These notes can be performing, and non-performing, and we have discussed those two before. The note with regular payments is called performing, and the other one is called non-performing. Multiple ways are there to invest in these notes, selling, buying, exchanging, and trading.

Most people confuse real estate note investing with real estate investment, and this is not ideal. In the former, you don’t have to worry too much about the property, exceptions are there. But in the latter, you must invest heavily in the property, and keep checking on it from time to time.

Investing in real estate notes has a different appeal to users. Some want to make money for themselves (sorry, all of them do), but some will do it to help others. This strategy does not take much time and money, which makes it the best choice. And if you don’t like responsibilities, this is again the best system for you.

Investing in these notes is tough, especially if it is a non-performing one. You would need enough resources and study materials to learn how to navigate through those. 

It’s important to note that the investor should have enough knowledge about different procedures, like foreclosure, flipping, etc.

People say that investing in mortgages can be found interesting with the right guidance. However, it’s difficult to come across, and hard to follow. But once you get there, you will be pleased with the results.

One way to do that is to invest via self-directed IRAs. But how would you approach this option?

You need to follow these steps:

Start a self-directed IRA account

The first step is to open a self-directed IRA account. You need to go to a verified teacher who can teach you these things. After opening, initiate the account with a fund transfer.

Start selecting the right properties

Not all properties are worth the investment, this is one thing one should consider. Therefore, it’s essential to choose the right property that can bring in millions.

Apart from that, you should also check the borrower’s profile. You don’t want to give money to the wrong person.

The paperwork

This is the most important part of the entire procedure. It’s necessary to fill the Real Estate Note form and get the Buy Direction Letter. While filling this form, check the borrower’s name, and details.

This is the proof you need to submit to the government. A copy (or multiple) should be kept for purposes. In some cases, mortgage deed, title commitment report from the lender. In this case, the lender is an IRA, instead of a person.

Payment options or Escrow details must be included in the paper as well. It must also contain details about closing the note as well.

This is the step you need to take for creating new real estate notes. The step is a little bit different for existing notes. You need to ask for amendments to all these documents and check if the details are correct or not. Here due diligence is required too.

Buy notes

Now, it’s time to consider buying a mortgage note from different sources. You should get it evaluated by a note evaluator before investing in it.

Sell notes

The last step is to ensure you can start making money. Check the portfolio of potential buyers, and then decide who will be the best option.

After going through all these steps, you are a full-time note investing expert.

We will reiterate some investing fundamentals too. Without due diligence, you cannot proceed any further. The legal documents, financial background of borrowers, and other information should be collected.

Always try to take aid from a third-party loan servicing service provider. They can make the task easier for you, and this will be a huge help for you. It checks all this information to ensure you don’t engage in any prohibited activities.

Investing in real estate notes can be your best option if proceeded carefully. You need to follow the note investing fundamentals to ensure you gain maximum profits.


Here are the reasons to try this option:

  • Not many people know about it, so less competition. Also, the barrier of entry is low.
  • You will get enough resources on the subject, Noteconference being one of them. Therefore, if you get stuck, you can refer to these.
  • You don’t need much time to see the results of your investment. But, you need the right strategy to ensure that.
  • You can do this part-time, or full-time, whatever you decide.
  • You don’t need a lot of money to invest in it. However, some amount will be nice.
  • It’s a great way of securing your post-retirement life.

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